PAYMENT OF INTEREST ON STUDENT LOANS.

SEC. 651. PAYMENT OF INTEREST ON STUDENT LOANS. (a) Authority.—(1) Chapter 109 of title 10, United States Code, is amended by adding at the end the following new section: “§2174. Interest payment program: members on active duty “(a) Authority.—(1) The Secretary concerned may pay in accordance with this section the interest and any special allowances that accrue on one or more student loans of an eligible member of the armed forces. “(2) The Secretary of a military department may exercise the authority under paragraph (1) only if approved by the Secretary of Defense and subject to such requirements, conditions, and restrictions as the Secretary of Defense may prescribe. “(b) Eligible Members.—A member of the armed forces is eligible for the benefit under subsection (a) while the member— “(1) is serving on active duty in fulfillment of the member’s first enlistment in the armed forces or, in the case of an officer, is serving on active duty and has not completed more than three years of service on active duty; “(2) is the debtor on one or more unpaid loans described in subsection (c); and “(3) is not in default on any such loan. “(c) Student Loans.—The authority to make payments under subsection (a) may be exercised with respect to the following loans: “(1) A loan made, insured, or guaranteed under part B of title IV of the Higher Education Act of 1965 (20 U.S.C. 1071 et seq.). “(2) A loan made under part D of such title (20 U.S.C. 1087a et seq.). “(3) A loan made under part E of such title (20 U.S.C. 1087aa et seq.). “(d) Maximum Benefit.—The months for which interest and any special allowance may be paid on behalf of a member of the armed forces under this section are any 36 consecutive months during which the member is eligible under subsection (b). “(e) Funds for Payments.—Appropriations available for the pay and allowances of military personnel shall be available for payments under this section. “(f) Coordination.—(1) The Secretary of Defense and, with respect to the Coast Guard when it is not operating as a service in the Navy, the Secretary of the Department in which the Coast 116 STAT. 2579Guard is operating shall consult with the Secretary of Education regarding the administration of the authority under this section. “(2) The Secretary concerned shall transfer to the Secretary of Education the funds necessary— “(A) to pay interest and special allowances on student loans under this section (in accordance with sections 428(o), 455(1), and 464(j) of the Higher Education Act of 1965 (20 U.S.C. 1078(o), 1087e(l), and 1087dd(j)); and “(B) to reimburse the Secretary of Education for any reasonable administrative costs incurred by the Secretary in coordinating the program under this section with the administration of the student loan programs under parts B, D, and E of title IV of the Higher Education Act of 1965. “(g) Special Allowance Defined.—In this section, the term ‘special allowance’ means a special allowance that is payable under section 438 of the Higher Education Act of 1965 (20 U.S.C. 10871).”. (2) The table of sections at the beginning of such chapter is amended by adding at the end the following new item: “2174. Interest payment program: members on active duty.”. (b) Federal Family Education Loans and Direct Loans.—(1) Subsection (c)(3) of section 428 of the Higher Education Act of 1965 (20 U.S.C. 1078) is amended— (A) in clause (i) of subparagraph (A)— (i) by striking “or” at the end of subclause (II); (ii) by inserting “or” at the end of subclause (III); and (iii) by adding at the end the following new subclause: “(IV) is eligible for interest payments to be made on such loan for service in the Armed Forces under section 2174 of title 10, United States Code, and, pursuant to that eligibility, the interest is being paid on such loan under subsection (o);”; (B) in clause (ii)(II) of subparagraph (A), by inserting “or (IV)” after “clause (i)(II)”; and (C) by striking subparagraph (C) and inserting the following: “(C) shall contain provisions that specify that— “(i) the form of forbearance granted by the lender pursuant to this paragraph, other than subparagraph (A)(i)(IV), shall be temporary cessation of payments, unless the borrower selects forbearance in the form of an extension of time for making payments, or smaller payments than were previously scheduled; and “(ii) the form of forbearance granted by the lender pursuant to subparagraph (A)(i)(IV) shall be the temporary cessation of all payments on the loan other than payments of interest on the loan that are made under subsection (o); and”. (2) Section 428 of such Act is further amended by adding at the end the following new subsection: “(o) Armed Forces Student Loan Interest Payment Program.— “(1) Authority.—Using funds received by transfer to the Secretary under section 2174 of title 10, United States Code, for the payment of interest and any special allowance on a 116 STAT. 2580loan to a member of the Armed Forces that is made, insured, or guaranteed under this part, the Secretary shall pay the interest and special allowance on such loan as due for a period not in excess of 36 consecutive months. The Secretary may not pay interest or any special allowance on such a loan out of any funds other than funds that have been so transferred. “(2) Forbearance.—During the period in which the Secretary is making payments on a loan under paragraph (1), the lender shall grant the borrower forbearance in accordance with the guaranty agreement under subsection (c)(3)(A)(i)(IV). “(3) Special allowance defined.—For the purposes of this subsection, the term ‘special allowance’, means a special allowance that is payable with respect to a loan under section 438.”. (c) Federal Direct Loans.—Section 455 of the Higher Education Act of 1965 (20 U.S.C. 1087e) is amended by adding at the end the following new subsection: “(l) Armed Forces Student Loan Interest Payment Program.— “(1) Authority.—Using funds received by transfer to the Secretary under section 2174 of title 10, United States Code, for the payment of interest on a loan made under this part to a member of the Armed Forces, the Secretary shall pay the interest on the loan as due for a period not in excess of 36 consecutive months. The Secretary may not pay interest on such a loan out of any funds other than funds that have been so transferred. “(2) Forbearance.—During the period in which the Secretary is making payments on a loan under paragraph (1), the Secretary shall grant the borrower forbearance, in the form of a temporary cessation of all payments on the loan other than the payments of interest on the loan that are made under that paragraph.”. (d) Section 464 of the Higher Education Act of 1965 (20 U.S.C. 1087dd) is amended— (1) in subsection (e)— (A) by striking “or” at the end of paragraph (1); (B) by striking the period at the end of paragraph (2) and inserting “; or”; and (C) by adding at the end the following new paragraph: “(3) the borrower is eligible for interest payments to be made on such loan for service in the Armed Forces under section 2174 of title 10, United States Code, and, pursuant to that eligibility, the interest on such loan is being paid under subsection (j), except that the form of a forbearance under this paragraph shall be a temporary cessation of all payments on the loan other than payments of interest on the loan that are made under subsection (j).”; and (2) by adding at the end the following new subsection: “(j) Armed Forces Student Loan Interest Payment Program.— “(1) Authority.—Using funds received by transfer to the Secretary under section 2174 of title 10, United States Code, for the payment of interest on a loan made under this part to a member of the Armed Forces, the Secretary shall pay the interest on the loan as due for a period not in excess of 36 consecutive months. The Secretary may not pay interest 116 STAT. 2581on such a loan out of any funds other than funds that have been so transferred. “(2) Forbearance.—During the period in which the Secretary is making payments on a loan under paragraph (1), the institution of higher education shall grant the borrower forbearance in accordance with subsection (e)(3).”. (e) Effective Date.—The amendments made by this section shall apply with respect to interest, and any special allowance under section 438 of the Higher Education Act of 1965, that accrue for months beginning on or after October 1, 2003, on student loans described in subsection (c) of section 2174 of title 10, United States Code (as added by subsection (a)), that were made before, on, or after such date to members of the Armed Forces who are on active duty (as defined in section 101(d) of title 10, United States Code) on or after that date.